The Best Dividend Stocks to Buy and Hold Forever

Dividend-paying stocks have long appealed to certain types of investors. That's because when companies make a policy of regularly distributing a portion of their profits, it allows their shareholders to receive regular income streams from their investments without having to sell shares.

It's imperative that investors who are considering buying stocks based on those payouts do their homework, however. Merely picking a stock based on its payment history, even if it's impressive, or the ones with the highest dividend yields, may result in unpleasant surprises.

After doing some digging, I've found two stocks that long-term dividend-seeking investors should definitely consider adding to their portfolios.

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1. Target

Most shoppers will be familiar with Target (NYSE: TGT) as a retailer that's committed to low prices. However, as investors, you may be interested to know that it has also demonstrated a strong commitment to dividends.

The company has paid dividends every year since it became a public company in 1967. Impressively, Target has increased dividends annually for the last 54 years. That streak makes it a member of the Dividend Kings, a small and illustrious group.

While Target has been going through a challenging period in terms of sales, you should have no doubt about its ability to keep paying dividends. It has a payout ratio of 52%, indicating that it can cover its dividends using its profits with plenty of room to spare.

I also expect its sales to improve again, which should drive profit growth. In its fiscal second quarter, which ended on Aug. 2, same-store sales (comps) dropped 1.9%. Broken out, lower traffic in stores accounted for 1.3 percentage points of that decline. Meanwhile, the size of the average transaction fell by 0.6%, accounting for the rest.

Several factors have contributed to Target's sales slump. One is that many consumers have become more cautious and pulled back on their spending on discretionary items. Additionally, Target's differentiated offerings, which have historically made it a popular shopping destination, haven't appealed to enough customers.

Chief Operating Officer Michael Fiddelke will become Target's chief executive officer early next year. Among other steps, he has promised to bring in trendier merchandise. I like that he's tackling that problem head-on, and I expect his back-to-basics approach will win back customers.

Target is also confronting boycotts after it dropped diversity, equity, and inclusion initiatives early in 2025. These have undoubtedly hurt its traffic, although to what degree remains uncertain. While Fiddelke hasn't directly addressed the issue, management previously reached out to community leaders to discuss the issue. Hopefully, these discussions will continue, since Target will have to perform a delicate balancing act from here.

The stock has performed poorly as of late, dropping 34% this year. That has, however, left it at a much better valuation for those looking to buy shares at its current price-to-earnings ratio of 10 compared with its P/E of 14 at the start of 2025. Given its potential for faster sales and earnings growth down the line, today's level looks like a bargain.

Meanwhile, its longer-term share price decline has lifted Target's dividend yield to 4.9%, nearly five times the S&P 500 index's average 1.1% yield.

2. Home Depot

Home Depot (NYSE: HD) is a popular retail destination for homeowners and professional contractors. It's the largest home-improvement retailer, producing about $180 billion in annualized sales.

It also produces plenty of free cash flow (FCF). During the first half of its fiscal year, which ended on Aug. 3, it generated FCF of $7.2 billion. That means it had plenty left over after spending on capital expenditures to cover the $4.6 billion in dividends it paid out during that period.

Management has clearly laid out its capital allocation priorities, and dividends are near the top of the list. In fact, dividend payments come right after investing in the business, including growth initiatives.

Although its results vary with the economic cycle, Home Depot has built an impressive dividend record. It has raised its payouts annually since 2010. And even from 2007 through 2009, when the country was going through the difficult years of the Great Recession, it held its payments steady.

Home Depot has been going through a challenging period recently, but that's due to larger economic forces at play. The company faces headwinds that include higher interest rates, a reluctance among customers to spend on major projects, and homeowners whose budgets have been squeezed by persistent inflation.

Despite all that, Home Depot's second-quarter comps, excluding foreign-currency exchange translations, grew by 1.4%. Adjusted diluted earnings per share inched up to $4.68 from $4.67.

While management expects a tepid 1% comps increase for the year, its same-store sales growth will undoubtedly reaccelerate at some point. After all, it's only a matter of time before people start to engage in more major home projects again, even if it's out of necessity. It seems likely that when that time comes, homeowners and contractors will turn to Home Depot, with its competitive prices and many locations.

When comps pick up, you can expect the retailer's earnings growth to accelerate. That should result in higher stock prices. While shareholders wait for that shift to happen, they can take comfort in collecting Home Depot's dividends, which at current share prices yield an above-average 2.4%.

Lawrence Rothman has positions in Target. The Motley Fool has positions in and recommends Home Depot and Target. The Motley Fool has a disclosure policy.